Air India CEO Warns of Demand Hit, Flight Cuts Amid Fuel Cost Surge

Air India CEO Campbell Wilson has issued a stark warning to employees regarding a potential slowdown in travel demand and the possibility of flight reductions, as the airline grapples with soaring aviation turbine fuel (ATF) costs exacerbated by the ongoing conflict in West Asia. The internal memo, reviewed by media outlets, highlighted that the financial repercussions of this crisis are yet to be fully realized, with the significant impact expected to hit in the coming month. The primary driver behind this concern is the dramatic surge in jet fuel prices. Brent crude has reportedly surged to $105 per barrel from $72 in late February, with some reports indicating jet fuel prices have more than doubled in recent weeks. Fuel constitutes a substantial portion, typically 30-40%, of an airline's operating expenses, making them highly vulnerable to such price volatility. Additionally, the depreciation of the Indian Rupee further compounds the financial strain, as a significant share of airline costs, including leases and maintenance, are denominated in US dollars. The geopolitical tensions in West Asia have directly impacted airline operations. Air India has already been forced to cancel approximately 2,500 flights to the region over the past three weeks and is currently operating only about 30% of its normal Middle East schedule due to airspace closures and safety concerns. Flights to Europe and North America are also experiencing longer rerouting, consuming more fuel and extending flight times, thereby increasing operational costs further. To mitigate the rising costs, Indian carriers, including Air India, IndiGo, and Akasa Air, have introduced or increased fuel surcharges on tickets. However, Wilson cautioned that there is a limit to how much airfares can be raised before travel demand inevitably drops. He also flagged concerns about a potential weakening of travel sentiment amidst broader economic uncertainties stemming from the conflict, suggesting that both corporate and leisure travelers might defer trips. Corroborating Air India's concerns, an ICRA Limited report released on March 27, 2026, painted a grim picture for the entire Indian aviation industry. The rating agency revised its outlook to 'negative' from 'stable,' projecting that the sector's losses could widen significantly to ₹17,000–18,000 crore in FY2026. This comes after an estimated net loss of around ₹55 billion in FY2025. The report attributes these widening losses to surging fuel costs, currency depreciation, and ongoing disruptions from the West Asia conflict. Domestic passenger traffic growth is also expected to remain subdued at 0-3% in FY2026. Other airlines globally and within India are also feeling the pinch. United Airlines is reportedly cutting unprofitable flights, and Scandinavian Airlines is reducing 1,000 flights in April. Indian airlines, in general, are facing a turbulent summer, with reports indicating a staggering 3,000 weekly flights have been slashed across the sector in 2026 due to escalating operational expenses. This reduced connectivity and potential for higher fares will directly impact air travelers. In response to these industry challenges, the Indian Civil Aviation Ministry is actively exploring measures to alleviate the pressure on airlines. Discussions have begun with state governments to consider cutting Value Added Tax (VAT) on Aviation Turbine Fuel (ATF), which varies widely across states (e.g., 25% in Delhi versus 1% in Uttar Pradesh). Fuel accounts for approximately 40% of an airline's operating cost in India, making tax relief a crucial support mechanism. Despite these immediate headwinds, Air India is also focusing on long-term transformation under its Vihaan.AI plan. The airline anticipates profitability to be at least three to four years away, projecting a loss exceeding ₹15,000 crore for the fiscal year ending March 31, 2026. However, it also plans significant international expansion and network optimization for FY2027, aiming to increase its domestic market share and enhance its product and operational reliability, seeking opportunities in new demand pockets like non-stop services between India and Europe. In conclusion, Air India's CEO's warning is well-founded and reflects a challenging period for the Indian aviation sector, driven by geopolitical instability leading to high fuel costs and potential demand softening. The industry-wide response includes fare adjustments, capacity rationalization, and calls for government intervention to ease the financial burden. The situation remains dynamic, with airlines closely monitoring global developments to adjust their strategies.

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